Neoliberalism is for mugs. This has turned out to be one of the main lessons of the present economic crisis.
Even when Ronald Reagan was US president back in the 1980s, the country’s rulers were much more gung-ho about pushing other states into adopting free market policies than they were about embracing them fully itself. They cherry‑picked, adopting those measures that benefited US corporations such as deregulation and privatisation.
But they remained quite uninhibited about increasing public spending (especially on the military) and slashing taxes (usually for the rich). They were also happy to cut interest rates to prevent the economy going into recession. All this reflected the US’s position as the dominant capitalist state in the world system.
So there is a stark contrast between the massive intervention that George Bush’s administration has mounted to rescue the US financial system and the response under his predecessor Bill Clinton to the East Asian financial crisis of 1997-98.
Back then the US government backed the International Monetary Fund (IMF) in imposing harsh austerity programmes on countries such as South Korea and Indonesia.
This time the crisis started at the heart of the system, in the US, and has radiated outwards to affect Britain and the euro zone before sweeping through weaker “emergent market economies”.
Many of these – such as Iceland, Hungary, Ukraine and Pakistan – borrowed heavily during the credit boom of the middle of this decade and are now in deep trouble.
Eastern and central European states have seen their currencies fall massively against the US dollar and the Swiss franc in the past few weeks. Many ordinary people in these countries were encouraged to take out mortgages in Swiss francs when interest rates were very low and the local currency was strong. Their repayments are now rocketing.
So the IMF is back in action to offer emergency loans to vulnerable states. In some cases the same old brutal conditions typical of IMF “rescues” in the 1990s are being imposed again.
Iceland last week had to raise interest rates to an eye-watering 18 percent in order to qualify for a $2 billion IMF loan. But the IMF probably doesn’t have enough money to rescue everyone who is in trouble. In present conditions its $200 billion of available money could easily run out.
Moreover, austerity packages will be resisted by the more powerful states in the Global South. And if implemented, they could produce a huge global slump – precisely what leading capitalist states are trying desperately to avoid.
So what the US and the IMF are doing is dividing “emergent economies” into sheep and goats. On Wednesday last week the US Federal Reserve announced that it was providing currency swaps worth $30 billion each to Brazil, Mexico, Singapore and South Korea. It explained that these countries were “systemically important” and “well managed”.
The Financial Times commented, “The Fed’s move underlines the status of the dollar as the world’s reserve currency. It is also a rejoinder to doubters of US geo-economic power. In effect the Fed has become central banker to the world’s central banks – or at least those that are US allies or important trading partners.”
The same day the IMF unveiled a programme of emergency loans available virtually without condition to a small number of states whose policies it approved of. Chile and the Czech Republic have been mentioned as potential candidates.
IMF managing director Dominique Strauss‑Kahn refused to name any state that would not qualify, apart from Argentina. This exclusion is significant. Argentina has rejected an IMF “rescue”, defaulted on its foreign debts and pursued Keynesian policies before they became fashionable in Washington and London.
The message is a simple one. State intervention is OK to rescue the economies at the core of the system. It may also be OK for those states in the Global South that are now too strong to push around. But for the rest there is the same old neoliberal cosh, wielded as usual by the IMF.